The phenomenal popularity of Canada’s new 10-year visas is a key factor behind the latest housing booms in Vancouver and Toronto, say immigration specialists. “I often travel to China, where I see the great pride many take in investing their money in Canada” —­ particularly by taking advantage of 10-year visas to buy real estate, said George Lee, a Burnaby immigration lawyer. In 2015, Canadian immigration officials issued 390,000 10-year, multiple-entry visas to residents of Mainland China, the largest cohort, with another 162,000 going to people from India. The former Conservative government began offering the 10-year visas in February 2014. As a result, in that first year, the number of travel visas handed to Chinese nationals tripled to 337,000. Lee says the visas, which allow people to travel freely to Canada each year and stay for at least six months at a time, have sparked an explosion in foreign travel and property speculation in Canada, particularly from China. The multiple-entry visas have caused a migration “chain reaction,” Lee said, which often leads to international students becoming proxies for offshore real-estate investors. … Hyman is particularly concerned about how a diverse range of real-estate speculators in B.C. use various means to obscure the legal ownership of property. A multiple-entry visa offers “many people exactly what they want,” said Hyman. “They want to be seen as tourists. They want to be off the radar of the Canada Revenue Agency,” including by being able to claim they’re not residents of Canada for income tax purposes. The multiple-entry visa gives wealthy foreign nationals increasing opportunities to use their low-income-earning offspring and others as proxies, sometimes called “nominees,” to buy Canadian property on their behalf, according to Lee and Hyman. Many wealthy foreign nationals employ their international-student children as channels for investing in real estate, they say, noting there are 130,000 foreign students in B.C., 51,000 of whom are from Mainland China. “Some people are transferring their wealth to their dependents and then relinquishing their permanent resident status in Canada. They’re applying instead for 10-year visitors’ visas,” Hyman said. He is particularly aware of foreign nationals, as well as domestic Canadians, using “bare trusts” and other loopholes to purchase properties and avoid paying taxes in B.C. His worries echo a Transparency International report that says stronger tax enforcement is desperately needed in Canada and especially for Metro Vancouver, where governments can’t identify the owners of almost half the region’s 100 most valuable homes. “B.C. is losing tens of billions of dollars in unpaid taxes related to property,” said Hyman. Too many dubious ways exist — the immigration lawyer said — for real estate investors to obscure their identities and avoid paying Canadian income taxes, B.C.’s 15-per cent foreign buyers tax, B.C.’s property transfer tax or capital gains tax on real-estate profits. To combat exploitation of Metro Vancouver’s housing market, Hyman said, one of the first things the new NDP government of B.C. should do is close the bare-trust loophole for owning properties. Former B.C. Liberal finance minister Mike de Jong promised in October, 2015, to get rid of the loophole, said Hymen, but he reneged. The Ontario government is far ahead of B.C. on this regulation, Hyman said. It closed the loophole in 1983.

“Canada’s long housing boom has drawn thousands into the sector, from realtors and home stagers to construction workers, and a looming slowdown threatens to trigger an exodus that could wipe out many of those jobs and force the economy to shift down.

While housing has long been the main engine of Canadian growth, economists say a drop in home sales has already started to weigh on the economy and if price declines follow, consumer spending and jobs will suffer.

“To a lot of people, it is a get-rich-quick scheme,” Toronto realtor David Fleming said about the real estate market. “But history shows when the market turns, half of the agents leave.”

Realtors’ ranks in Canada’s largest city and hottest housing market have surged 77 percent since 2008 to more than 48,000 – nearly 10 times the pace of Canadian job growth. Nationwide, that number has risen 26.9 percent.

By comparison, there are over 13,500 realtors in Chicago, according to the Chicago Association of Realtors.

With Canadian home construction jobs rising at nearly the same pace as real estate jobs, housing has become the top driver of employment and economic growth, accounting for the bulk of Canada’s economic growth last year.

As the nearly one million housing sector jobs now far outstrip those in oil and gas extraction and mining combined and approach the size of the manufacturing sector, economists brace for a painful reckoning if the housing slowdown turns into a long correction.

More than half of the analysts polled by Reuters in May said a sharp housing correction was somewhat or very likely in Toronto and Vancouver, but unlikely nationally.

Recent data showed nation-wide home resales fell 6.7 percent in June, the largest monthly drop since 2010 and the third straight monthly decline as sales in Toronto tumbled, and sales are expected to slow further as interest rates rise.

While most housing bears have been focusing on how much home prices could drop, economists are also trying to work out how badly a resulting decline in consumer spending and housing jobs could hurt the broad economy. …

Veteran realtors who have seen the industry swell with inexperienced agents have no doubts that a slowdown will decimate their ranks.

“It is definitely overpopulated,” said Shawn Zigelstein, a realtor in the York Region, north of Toronto. “A downturn will weed out of some of those agents who got into the business for the wrong reasons.”

Already, many realtors are struggling in the crowded market. Nearly half of Toronto’s licensed realtors did fewer than two deals last year, according to Brian Torry, general manager at Bosley Real Estate in Toronto. Less than a third did five or more transactions.

“It is a tough industry to break into,” said Jared Gardner, 38, who got his real estate license last year and works in the Toronto area.

Fleming believes many agents are already making less than minimum wage once license, membership and brokerage fees are paid, and it can only get tougher if sales continue to dry up.”

Mispricing of risk (too cheap money) has caused severe misallocation of resources, with speculators chasing hot sectors and being rewarded for risky behaviour. This has resulted in a ballooning of RE and related activities. Our economy has become overdependent on a concentration of activity, in an unsustainable fashion.
This phenomenon has been clear to some people for many years, yet it has been allowed to continue, encouraged even, because those with any control over monetary policy, the importing of money, or mortgage rates suffer conflicts of interest. The herd has been encouraged to run faster and faster, in one direction, and the imbalance has become more and more extreme.
This will all end. Laws of physics apply here as much as laws of economics – Canada can’t become a giant perpetual motion machine, with most of us doing nothing but selling houses to each other. Once the superficially ‘virtuous’ cycle, fueled by speculation, turns in the opposite direction, and becomes ‘vicious’, this sector collapse, and there will be all sorts of knock-on effects.
There will be great damage, but there will be good consequences, too:
The seemingly intractable housing ‘crisis’, that we now hear about constantly, will greatly benefit from a crash in prices. Housing that is priced close to those prices determined by fundamentals (the actual utility of the property) is healthy for an economy and a society.
– vreaa

“Overall, I’m actually quite shocked on several fronts. One is that the housing crisis that I observed in 2007, 10 years ago, has become worse on virtually every level, whether you look at the level of homelessness, densification of poverty, the crisis of rental housing and the lack of housing options for low-income people. So that’s been quite surprising. These adverse housing and living conditions are partly fed by the hyper-speculation and gentrification you see all across the city.
I’m also quite disturbed by the fact that the city government, instead of playing the role of protecting housing options that lower-income people have, has been either through acts of commission or omission actually abetting this whole process. The kind of gentrification that you see happening in the Downtown Eastside, and that you see now in Chinatown is also being done through a process of rezoning, through the development of condominium buildings that drive up land values for adjacent areas. There doesn’t seem to be a commensurate attempt to increase the housing options for lower-income and modest-income people. You either see a shortage of shelters or inadequate conditions in shelters, a complete reduction in the number of single resident occupancy units, or the type of decrepit situation that you see at the Balmoral.
I don’t know what the logic is there, but [it’s] similar to the logic in other cities, where municipalities, in collusion with developers, deliberately let a particular area deteriorate and then it becomes an emergency. And then, when renovations happen, those properties don’t ever go back to the people who lived there before…”
—“There’s no reason why the gentrification that is happening in the Downtown Eastside or Chinatown should be allowed. An entire area could be zoned off from this speculation to protect the low-income people living there. It has to be a political choice. It requires leadership at the political level. One can’t rely on the planners without the political sanctioning of such a policy. If you are doing rezoning, it could be limited to developing social housing for those most in need, not for the rich. A few token units for seniors and low-income people are insufficient. So I don’t see the city doing an adequate job in trying to stem that tide of gentrification.
The only conclusion you can reach is that there has to be collusion between the city machinery, developers, and obviously homeowners are de facto part of that too. That is who is benefiting from this system as it is. And it’s hurting the vast majority of the people who live here. We’re talking about millions and millions of dollars being made in this corrupt structure. People should be thoroughly embarrassed by this. If this were a similar situation in other countries, there would be investigations and hard questions being asked. Why are interest rates so low? Why are the banks being downgraded for being overexposed in the housing market? There should even be criminal investigations related to the real estate sector. The story of the unbridled real estate market in Vancouver is casino capitalism as its worst — a lottery which reduces a social resource like housing to a commodity.”

You’ve heard it a million times. The reason so few of us can afford Vancouver is because there aren’t enough new homes being built. This is the version of reality that real estate industry leaders and their political allies want us to believe.
But an investigation of the industry by The Tyee has revealed reality to be much more complex. Over the past six months I spoke at length with financial analysts, economists, industry consultants, realtors and many others to learn the true causes of Vancouver’s housing crisis and who is profiting from it. They were in broad agreement that real estate is at the centre of a massive realignment between our society’s rich and poor — and one that few leaders in the industry seem willing to publicly acknowledge. Here are the key takeaways from those conversations.

1. The industry no longer sells homes — it sells investments

Real estate has historically been a local industry. The people who buy and sell a city’s homes tended to live in that city. Yet that all began to change a decade or so ago. And one of the major reasons for it is a big shift in our global financial system. It’s a complicated subject. But what you need to know is that the global capital investors use to invest in things is growing much faster than the actual economy. There is so much capital, investors don’t know what to do with it all. Desperate for quick financial returns, many investors are pouring this capital into real estate, turning local markets into global investment opportunities. One of the results, according to trackers such as Bain & Company, is “skyrocketing home prices.”

2. Wealthy people are profiting from the housing crisis

The explosion of global capital coincided with an explosion of global wealth. Worldwide, the number of people worth $30 million or more has grown 60 per cent in the last 10 years. These elites have a different relationship to real estate than regular people. High housing prices aren’t a hindrance to the ultra-rich. The pricier homes become, the more desirable they are as a marker of social status. That’s why one top investor not long ago compared Vancouver condos to contemporary art. Rich people are less likely than the rest of us to live in the homes they purchase. A poll done by the group Knight Frank suggested the most popular reason rich people acquire real estate “is as an investment to sell in the future.” Which means they profit when prices rise.

3. Rapidly rising house prices are deepening class divides

Unaffordable homes are not just a drag on people’s incomes. The housing crisis is doing lasting damage to social mobility. If you are hoping to improve your income, your best bet these days is to live in — or relocate to — a large, globally connected city. Over 90 per cent of new jobs in Canada over the past several years were created in just three such cities: Vancouver, Toronto and Montreal. And of those, Vancouver has Canada’s fastest growing economy. But housing is so pricey that those opportunities are denied to many people. One real estate economist worries that “we are driving a very large wedge between the lowest income earners and the highest income earners.”

4. Industry leaders are convinced the middle class is dying

The real estate industry is aware social mobility is declining. Its leaders know there is huge demand for cheaper homes. But they prefer to profit from income inequality rather than doing anything about it. That’s one takeaway from a major real estate industry trends report produced by PwC and the Urban Land Institute. “The middle class has been hollowing out,” it concluded. With land prices going up in big cities, the industry is increasingly focused on building luxury homes for wealthy people. Not everyone thinks it’s a wise strategy. “Time will tell if that’s going to come back to haunt us,” said one CEO. “Not everybody makes $75,000 to $100,000 a year.”

5. Your intimate data is being used to drive home sales

Even if you don’t earn much money, you can still be valuable to the real estate industry as a source of data. It’s likely not news to you that almost everything you do online — and off — is tracked and sold to advertisers. But what is new is that the real estate industry is now trying to get in on the action. Companies are creating technology that mines public records and notifies realtors when a potential client gives birth, declares bankruptcy or files for divorce. Industry forecaster Swanepoel predicts “this technology will be huge.” But at what cost to privacy? Or our right to control our identities? “I don’t think anybody has the answer,” said one observer.

6. Political leaders aren’t telling the full story about housing

What we can be certain of is that politicians aren’t telling the full story about the true causes of unaffordability. British Columbia Premier Christy Clark has argued “the only way to really solve” the housing crisis is to build more condos. And during the provincial election, her BC Liberals took any chance they could to blame the red tape and protesters they claim are standing in the way. Yet the majority of new condo units are sold to speculators. More supply isn’t helping locals. The market does what it knows best: maximizing profits. Which is why industry insiders like Richard Wozny argue the “only group at fault are politicians” — those who know what the problem is but refuse to fix it.

7. Local speculators are cashing in while we blame foreigners

The most substantial step the BC Liberals took towards fixing Vancouver’s housing crisis was the 15 per cent Foreign Buyers Tax. At first the tax seemed to work: home sales and prices fell. But prices are once again rising. And this time transactions involving overseas buyers are at relative lows. “Everything we see suggests that there is a whole lot more domestic investment activity in the real estate sector than foreign investment,” said the head of Canada Mortgage and Housing Corp. Foreign money is a big cause of crazy home prices. But so are Canada’s historically low interest rates, which make it “almost stupid to not buy property,” argued the site Better Dwelling.

8. Income inequality is causing a boom in luxury retail

Real estate has become a zero-sum game in Vancouver. Those at the top are doing better than ever, while everyone else struggles. It’s a fair assessment of our wider economy. Recent data from Stats Canada showed that average Canadian incomes have stopped increasing. Yet the ranks of the ultra-rich in Canada are growing faster than in the U.S. — between 2006 and 2016, the number of people worth over $30 million rose 50 per cent in this country. These elites want to flaunt their wealth. And the boom of luxury retailers across the country is happy to oblige them. “High-end retail will prosper as the high-end population does well,” noted one real estate analyst.

9. People within the industry want serious solutions

What the May provincial election showed is that people across the province, but particularly in urban regions, want serious change. They are sick of being priced out of their cities. They’re fed up with an economy that privileges the wealthy. And they’re tired of being lied to. The NDP-Green coalition now has an opportunity to make things better. Leaders of the two parties promised housing policies that “will have an impact,” local realtor Steve Saretsky told The Tyee. He is one of many people within the real estate industry who supports solutions to our current housing crisis. “A lot of realtors I’ve spoken with want some sanity to the market,” he noted. “They know it isn’t sustainable.”

Longtime readers of this blog will be familiar with many of these factors.
A very good article and hats off to Geoff Dembicki for pursuing.
The potential future for our city is that it will either increasingly look more and more like a gated airport/casino, or it will suffer a massive RE price crash.
– vreaa

Massive and risky home loans are increasing in number across Metro Vancouver, while mortgage fraud cases are also on the rise, connected to the growth of so-called “shadow banking,” a Postmedia investigation shows.
The trend of increasingly risky loans underlying Metro Vancouver’s high home prices is illustrated by Bank of Canada figures that show the rapid growth since 2014 of large mortgages made to people with relatively low incomes.
This is a growing danger for Vancouver’s real estate market, because under new tighter lending standards introduced for banks in fall 2016, the Bank of Canada says that many of these big mortgages can no longer be insured, and won’t be issued again by federally regulated lenders.
As a result of the tighter federal lending rules, borrowers trying to buy million-dollar-plus properties in Vancouver’s market are increasingly taking out dangerous loans from shadow bankers in a fast-growing and poorly regulated financial market.
There is also evidence of growing links between shadow banks and traditional banks, according to the Bank of Canada’s June 2017 report, as people borrow large amounts from shadow lenders to use as down payments in order to qualify for lower-interest loans from federally regulated banks.“Price increases in Vancouver and Toronto have an element of speculation to them,” Bank of Canada Governor Stephen Poloz said last week, while issuing the bank’s biannual financial system review. The review showed “riskier characteristics are increasingly evident” in new mortgages.
A December 2016 Bank of Canada report estimates shadow lenders now account for $1.1 trillion in debt — about half as much as the traditional banking sector — and that over the past decade “these new players have become more important and have changed the face of the Canadian mortgage market … (as) tightening bank regulation can lead to migration of activity from the traditional banking sector to the shadow banking sector.”
…Postmedia’s review of over 30 regulatory or civil court cases shows a trend of allegations that home buyers and real estate professionals are involved in deceptive mortgage applications that include exaggerating the incomes of borrowers, forged documents of home ownership used by multiple borrowers to obtain mortgages, phoney claims of offshore assets used to back home loans, falsely inflated collateral accepted by subprime lenders to fund real estate development loans, and falsified CRA tax return documents.
For Hilliard MacBeth, an Alberta-based author and wealth manager, the Bank of Canada loan risk statistics and the related growth of shadow banking in Vancouver and Toronto herald a crisis. “These properties in Vancouver are so expensive that you need people either laundering money or loan fraud or people borrowing such large amounts of money that should never be allowed, in order to keep it going,” MacBeth said. “If everyone is reporting their incomes honestly in Vancouver, there is no way that housing prices can stay where they are.”
– image and excerpts from ‘Risky mortgages, shadow bankers threaten Vancouver housing market’s stability’, Sam Cooper, Vancouver Sun, 16 Jun 2017 [hat-tip to The Auteur; and hats-off to Sam Cooper for pursuing this]
—(* The author has exercised their right to poetic license in the writing of the title of this post.)
But, seriously now folks, notice how none of the mainstream players and commentators consider the option of a price crash as a solution to most of Vancouver’s housing problems.
A price crash, a real price crash, would flush out all speculators and all appetite for speculation for about two decades, perhaps even three. The price of accommodation in our fair city would drop to fair fundamental values (perhaps lower for a brief period). All housing would be used, as there would be no pie-in-the-sky jackpot for those who wanted to hold ‘units’ like poker chips. Lending would tighten to the point that one would have to be able to support a purchase with demonstrated income (novel idea!).
Sure, people would get hurt, but people are hurtin’ now, and who is to say who should be hurtin’ and who shouldn’t?
Real estate and related activity would drop from, what?.. its current inflated 30% of the economy to a more historically normal less than 10%. Kids would go to classes rather than smoking weed while tacking cheap shingles to roofs without harnesses. We’d be able to talk about things other than RE at BBQs (I know this may be difficult, but we can do it!). Our minds (and behaviours) would stop being blown and distorted by stories of professionals making more money via their modest house than that saved and invested from an entire 40 year career of honest earnings.
Homes would become homes again.
Vancouver would never be cheap, or ‘free’.. nobody’s expecting that. But ‘honest’ prices, determined by those who actually want to use properties and are prepared to fund them from their own actual funds, would be a very good thing for the longer term health of the city.
– vreaa

How many times should we say it? Don’t build residential towers. Don’t make or let people live in them, least of all families. They are antisocial, high-maintenance, disempowering, unnecessary, mostly ugly, and they can never be truly safe. No tower is fireproof. No fire engine can reach up 20 storeys, period. Towers are again raising their heads across the urban landscape, creatures of egotistical architects, greedy developers and priapic mayors. We gasp at their magnificence, their extravagance, their sheer height. Yet like Grenfell they are alien creatures in a British city. They do not converse with their context, they thumb their noses at it. … There is no need to build high at all. The developers’ cry, that cities must build high to “survive”, is self-serving rubbish, the more absurd when their towers are left half-empty. The principal reserve of residential space in British cities is derelict land and the under-occupation of existing houses. Unless we wish to build at the squalid densities of Mumbai and Hong Kong, high buildings require space round them and extensive ground servicing. Hence the most “crowded” parts of London are not around towers but in eight-storey Victorian terraces. The boulevards of central Paris have treble London’s residential density without towers. Westminster council’s aborted Paddington Pole, at some 60 storeys, had fewer housing units than the high-density street housing suggested by its opponents. The tall blocks wanted by Boris Johnson for Clerkenwell’s Mount Pleasant estate are at a lower density than the low-rise town houses proposed by the consultants Create Streets. Besides, people are entitled to the city they want. When in the 1980s Liverpool’s Militant movement asked Everton’s inhabitants what should be done with their towers, the reply was pull them down and give us back the streets. It was done. Today’s surge in tower building – some 400 are in the pipeline of London’s uncontrolled property market – is driven by a quite different demand. It is from high-income migratory couples and foreign buy-to-leave investors. These people do not want a neighbourhood. Their social life is dispersed. They want a locked gate, a concierge and a pied-à-terre with a view. They want a gated community in the sky. When I moved from a tower flat to a street flat, I encountered a completely different city, exchanging what amounted to a self-catering hotel for a community of neighbours.